yeah i was coming here to suggest this. LLC with the S-corp election will save you ass-tons in taxes. the paperwork isn’t worth it until you get to around 100k in consulting income but from there on you can basically cut your SE taxes in half (although technically you don’t pay SE taxes with this setup, you’re paying yourself as w2 so their employer taxes)
> yeah i was coming here to suggest this. LLC with the S-corp election will save you ass-tons in taxes
Where did you hear that? No accountant I've ever spoken with mentioned it's worth setting up an LLC to save money on taxes as a typical set up where you're a solo developer who runs their own tech business.
I mean, paying yourself less of a salary through an LLC is going to result in paying less income tax but it's not a system where suddenly you're paying way less in taxes AND you get to keep the remainder to do as you please right now as if it's some type of easy loop hole.
There's also regulations around single employee LLCs around all profits being taxed as income for the owner.
i did it for years. You don’t pay employment taxes on dividends/distributions, just income taxes. so you’re still paying taxes on those but you’re saving 7.5% on the employment taxes side. maybe “ass-tons” is over selling it but coupled with business deductions you can take you can save quite a bit.
the IRS may take a closer look at you if you’re taking less than half your revenue in W2 income but otherwise it’s perfectly legitimate.
[edit: the S-corp election is key. look into that.]
> You don’t pay employment taxes on dividends/distributions, just income taxes
Did you have multiple employees? I think that changes everything, we're talking about a solo business owner in this case.
All profits from a single employee LLC get treated as income tax. Here's a quote from Intuit[0]:
> Single-member LLCs are disregarded entities. A disregarded entity is ignored by the IRS for tax purposes, and the IRS collects the business’s taxes through the owner’s personal tax return. Single-member LLCs do not file a separate business tax return.
This also applies to S-corp election. It's why a few accountants that I've spoken with have suggested that creating an LLC for tax savings as a solo business owner isn't worth it. It just complicates things for no real benefit. You have reduced liabilities but that's separate from saving money on taxes.
As you mentioned it would be a good idea to give yourself a reasonable salary as an LLC employee to not get audit by the IRS which is why you can't expect to hire a friend for $10 / year to instantly make yourself a multi-employee business.
> If a single-member LLC does not elect to be treated as a corporation, the LLC is a "disregarded entity," and the LLC's activities should be reflected on its owner's federal tax return.
(emphasis mine)
That “if” is significant. As an SMLLC you can elect either C-corp or S-corp (pass through) status, and that changes things completely.
